Factbox: Pros and cons of El Salvador, the first bitcoin nation

SAN SALVADOR, Sept. 6 (Reuters) – El Salvador will become the first country in the world to recognize bitcoin as a legal tender on Tuesday, a move President Nayib Bukele says will save millions of Salvadorans living abroad of dollars in commissions of money they send home.

Despite the popularity of Bukele, many Salvadoran players have worried about the move with skepticism about the volatility of the cryptocurrency and how it works.

Below are some of the advantages and disadvantages that have appeared on the El Salvador plan, first launched in June. Read more

REMITTANCES

Salvadorans sent nearly $ 6 billion abroad last year, mostly from the United States. The sum is equivalent to 23% of the country’s gross domestic product.

Bukele said last month Bitcoin would offer “huge profits” because it would save Salvadorans $ 400 million that he said was spent every year on remittance commissions.

But many of the people who send or receive dollars in El Salvador are wary of Bitcoin. Meanwhile, World Bank data shows that the US remittance costs of the Central American country dollarized are already among the lowest in the world.

CARBON FOOTPRINT

El Salvador’s bitcoin plan has highlighted the environmental impact of cryptocurrencies, and the World Bank marks these possible adverse effects among its concerns.

The extraction of digital currency from cyberspace requires large amounts of energy and the global CO2 emissions of the bitcoin industry have increased to 60 million tons, equal to the escape of about 9 million vehicles, said Bank of America in March.

Bukele tried to counter sustainability issues by saying in June that he had instructed state-owned geothermal power firm LaGeo to develop a plan to offer bitcoin mining facilities with renewable energy from the country’s volcanoes.

COMPLIANCE WITH REGULATIONS

While proponents present bitcoin as an innovation independent of government whim, it has sparked warnings that could increase regulatory, financial and operational risks for financial institutions, including international anti-money laundering and terrorist financing rules. .

In June, the rating agency Fitch Ratings noted that “capital gains will not be taxed and taxes can be paid on bitcoins, which could attract bitcoin inflows into the country. This may increase the risks arising from illicit activities in through Salvadoran funding. system “.

The International Monetary Fund has cited legal concerns about adopting Bitcoin amid talks with El Salvador over a nearly $ 1 billion financing deal, which is still pending.

After Bukele’s bitcoin law was passed, rating agency Moody’s downgraded El Salvador’s solvency. Bonds denominated in country dollars have also been under pressure.

EXCHANGE ABROAD

Bukele has created a $ 150 million fund to enable the conversion of bitcoins into dollars, but doubts remain about how the country will avoid risks related to strong fluctuations in the digital currency, the value of which can vary by hundreds of dollars a day. .

Fitch argued that bitcoin would be negative for Salvadoran insurance companies exposed to the currency because of the increased risk of currency volatility and earnings.

“Insurers that keep bitcoins on their balance sheets for extended periods will be exposed to their price volatility, increasing asset risk,” Fitch said last month.

However, for those who own bitcoin, it has proven to be a popular means of payment in El Zonte, a beach town that was one of the springboards for cryptocurrency in El Salvador.

As long as there are no convertibility issues, this has spurred you to be a major currency winner.

Compiled by Dave Graham and Anthony Esposito; Edited by Dan Grebler

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